19.9 The following information relates to Mere’s budget for the year to 31 December 2007:

The directors are worried about the loss that product M is budgeted to make, and various suggestions have been made to counteract the loss, viz.:
1 stop selling product M;
2 increase M’s selling price by 20 per cent;
3 reduce M’s selling price by 10 per cent;
4 reduce its costs by purchasing a new machine costing £350 000, thereby decreasing the direct labour cost by £100 000 (the machine would have a life of five years; its residual value would be nil).
Required:
Evaluate each of these proposals.

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Product K L M Total 000 000 000 000 Sales 700 400 250 1350 Direct materials 210 60 30 300 Direct labour 100 200 200 500 Variable overhead 90 60 50 200 Fixed overhead 20 40 40 100 420 360 320 1100 Profit/(loss) 280 40 (70) 250 Budgeted sales (units) 140 20 25